Side Letter: PE’s LP securitisations; BlackRock’s LTAF; Mercury’s boss loss

A US pension fund's collateralised fund obligation could mark a breakthrough for private equity's liquidity issues. Plus: BlackRock has launched its first LTAF; and a Mercury co-founder is leaving for pastures new. Here’s today's brief, for our valued subscribers only.

Just happened

Securitisation: the key to unlocking LP liquidity? (Source: Getty)

Opening the floodgates?
A large US public pension fund has inked a mandate with banks to issue a publicly rated collateralised fund obligation of private equity interests, our colleagues at Private Funds CFO report (registration required). The transaction, which is being marketed to investors, would involve moving fund interests into a special purpose vehicle that would issue bonds backed by the interests. It is expected to occur in the second half of this year.

A specific US institution is rumoured to be the would-be issuer, though Private Funds CFO was unable to confirm this by press time and a spokesperson for the LP declined to comment. State Teachers’ Retirement System of Ohio had previously been considering a CFO issuance before tabling the project due to cost, Private Funds CFO noted.

The fund interest securitisation market has seen a trickle of activity recently, although primarily in the form of private deals issued by PE managers themselves, generally called rated feeder funds. Notable examples of PE CFOs include the Astrea series from Temasek subsidiary Azalea Asset Management, which opened to retail investors last year.

This latest deal would mark something of a breakthrough for the market in helping pensions facing the dominator effect and liquidity issues to offload interests in bulk. A successful trade by the LP in question could bring others to market, which in turn could help PE firms struggling to raise new funds by freeing up new capital for commitments. Both GPs and LPs will no doubt be watching this attempt with interest.

Mercury’s moves
Fundraising veteran Enrique Cuan is leaving Mercury Capital Advisors, the Investcorp-owned placement firm he co-founded, to pursue other career opportunities, per a statement. Cuan directed and co-led the spin-out of the PE fundraising group from Merrill Lynch in 2009. He was responsible for advising institutional investors in Europe and Asia (ex-Japan and Korea) on their alternative investments and co-led Mercury’s expansion into new areas including asset management, secondaries and co-investments. His next steps are unclear.

Mercury has rejigged its top team following Cuan’s departure. Jennifer Frame has been named head of North American distribution, leading a team of five; Sara Modalal Al-Qahtani will lead fundraising in the Middle East; and Matthew Haimes will lead origination and distribution in Europe. Meanwhile, Devrup Banerjee, previously from Glendower Capital, was recently appointed to lead Mercury’s secondaries advisory practice.

The placement agent has suffered several high-profile departures in recent years. Former secondaries head Sabina Sammartino stepped down in February to join the advisory unit of Japan’s Daiwa Securities Group, our colleagues at Secondaries Investor reported (registration required). Alan Pardee, one of three founding members, departed in 2019 to join Valor Equity Partners. Mercury’s other co-founder and chief executive, Michael Ricciardi, moved to a chairman emeritus position in 2021.

PE’s latest LTAF
Last week, BlackRock launched its first UK long-term asset fund. The sustainability-themed Diversified Alternative Strategies LTAF will invest across PE, infrastructure, real estate and private credit, with a proportion allocated to listed markets investments, our colleagues at New Private Markets report (registration required). The open-end vehicle, which is to be marketed to defined contribution pension funds in the UK, will target deals that have a social impact and support the transition to a low-carbon economy. BlackRock did not disclose a fundraising target for the vehicle or target returns.

Schroders Capital in March launched its debut climate-focused LTAF with Cushon, a £1.8 billion ($2.2 billion; €2.1 billion) AUM private pensions trust, as its cornerstone investor; Aviva Investors launched a £1.5 billion real estate LTAF earlier this month. The UK’s Financial Conduct Authority unveiled these structures in 2021 to provide DC pension savers with access to more long-term and illiquid products. Consultation is ongoing on broadening LTAF access to retail investors.


Levin it up
Morgan Stanley Investment Management has appointed industry veteran Michael Levin as head of Asia, per a statement. Levin was most recently a managing director at Goldman Sachs Asset Management and previously spent a decade at Credit Suisse where he was head of asset management for the Americas and Asia-Pacific. Levin will focus on new market and product opportunities from Hong Kong.

MSIM is active across a number of strategies, including PE, private credit, real assets and fixed income. The unit’s activity in PE includes Asia-Pacific investments, impact investing, secondaries and diversified fund portfolio offerings, per its website.

PE to the rescue
As the threat of recession draws closer, some mid-market businesses are looking towards new sources of financing to future-proof their operations. Enter: PE. According to April research conducted by RSM, a provider of audit, tax and consulting services, 47 percent of UK mid-market businesses expect to use PE finance in the next 12 months. This is an increase of 11 percentage points from only six months earlier.

PE is becoming an increasingly attractive option for mid-market companies because of its expertise in making acquisitions, the report said. In an article published alongside the study, RSM director and PE senior analyst Jasper van Heesch said increased appetite among businesses for PE was “not surprising at all”. “Other equity capital sources have been under huge pressure,” he noted. “IPOs have all but shut down… While other sources have retracted, PE has remained an open market.”

The research also found that 51 percent of survey respondents plan to focus on capital investments to improve the strength of their businesses. This, according to van Heesch, is another reason why PE is such a good fit: the asset class has a record amount of dry powder to deploy – $3.7 trillion at the end of 2022, per Bain & Co analysis. Though a recession would be challenging for businesses and fund managers alike, there may be a silver lining in the form of heightened PE dealflow.

Today’s letter was prepared by Alex Lynn with Carmela Mendoza, Helen de Beer, Madeleine Farman and Katrina Lau.